The Coca-Cola Co. Lost to the Market in 2014. Will These Deals Help the Stock Pop in 2015?

By Markets Fool.com

Coca-Cola has not turned in stellar performance as of late, but the Warren Buffett-approved beverage giant could turn things around soon. Coca-Cola's stock returned just 7% in 2014, including dividends, compared to 14.5% for the S&P 500. However, the company made several moves last year that could bear fruit in 2015 and beyond.

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A year of deal making
2014 was a year of deal making and diversification. Coca-Cola's biggest moves included taking equity stakes in and forging partnerships with Keurig Green Mountain and Monster Beverage .

Last February, Coca-Cola announced a long-term partnership with Keurig, maker of the eponymous coffee brewer and K-Cup single-serve coffee pods. As part of the deal, Coca-Cola bought a 10% stake in Keurig for $1.25 billion, and later exercised a right to purchase an additional stake, bringing its total interest to 16% of Keurig's outstanding shares.

In addition, Coca-Cola announced in August that it would buy a 16.7% stake in Monster Beverage for $2.15 billion.

These deals mark an important turning point in Coca-Cola's history and could pave the way for another century of shareholder value creation.

Coca-Cola's strategy for 2015
Coca-Cola has a tough road ahead of it, but the company might be on its way to solving some of its biggest challenges in the coming year. Consumption of the company's core beverage -- carbonated soft drinks -- declined for the ninth straight year in the United States during 2013 and likely fell again in 2014.

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Creating a new distribution channel with the upcoming in-home Keurig Cold device could increase demand for soft drinks and other Coca-Cola beverages. Keurig Cold is expected to be released later this year, potentially providing the spark that reignites consumer interest in soft drinks.

Keurig also helps Coca-Cola diversify its product line away from the fading soft drink market. Even after the Keurig Cold is introduced, Keurig will still be reliant on the U.S. coffee and tea market for most of its sales. If the Keurig Cold performs well, Coca-Cola could make a bid for the entire company -- increasing the beverage giant's exposure to the coffee market.

Monster provides even greater diversification for Coca-Cola in a growing market. As part of the deal struck last year, Monster transferred its non-energy brands -- including Hansen's Natural Sodas, Peace Tea, Hubert's Lemonade, and Hansen's Juice Products -- to Coca-Cola. In return, Coca-Cola transferred its energy drink brands to Monster and became Monster's leading global distribution partner.

The big market opportunity for energy drinks provides enormous upside in the Monster deal. Although Monster's 2013 revenue was just 4.8% of Coca-Cola's revenue, the company has a long runway for growth. Monster's energy drink volume increased by 7.7% in 2013, according to Beverage Digest. As the category grows, energy drinks will likely capture more shelf space in convenience stores by replacing diet soft drinks.

Moreover, Coca-Cola's global distribution system should accelerate Monster's expansion in foreign markets. With relationships in nearly every country on Earth, Coke can introduce Monster's products to new markets faster than Monster could on its own. This could spark higher growth in the years ahead.

Finally, Coca-Cola needs to cut costs even as it ramps up new offerings. The company plans to save $2 billion annually -- or 4.3% of 2013 revenue -- by 2019 through cost-cutting and supply chain optimization. Achieving the cost reduction target would provide a meaningful boost to Coca-Cola's operating margin, which hovers around 22% of sales. Investors should keep an eye on the company's progress to ensure the promised cost savings actually materialize.

The article The Coca-Cola Co. Lost to the Market in 2014. Will These Deals Help the Stock Pop in 2015? originally appeared on Fool.com.

Ted Cooper owns shares of Coca-Cola. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, and Monster Beverage. The Motley Fool owns shares of Monster Beverage and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.